Fed. Circuit Remands in Part Zenith Electronics v. PDI Comunications Systems

Holding:

The U.S. Court of Appeals for the Federal Circuit affirmed in part and remanded in part a district court’s summary judgment issued in a case involving plaintiff Zenith Electronics Corporation’s (“Zenith”) patented remote TV control system that was designed for hospital use. The district court found that defendant PDI Communication System, Inc. (“PDI”) did not infringe Zenith’s ‘301 patent because PDI was practicing the invention under an implied license from Zenith. The Federal Circuit affirmed this ruling, stating that such implied license was derived from the express license granted by Zenith to manufacturers of Zenith’s invention. With respect to the other patent (‘513 patent), the Federal District reversed the district court’s finding of invalidity for being anticipated by public use because PDI was unable to prove such defense. Hence, on remand, PDI should prove the elements of anticipation, taking into account that a defendant must “show that each element of the claim at issue, properly construed, is found in a single prior art reference."

Detailed Summary:

At the time of the institution of the complaint for patent infringement, plaintiff Zenith owned the ’301 and ’513 patents.  These patents generally related to televisions and wired remote control devices used in hospital rooms. Zenith filed this appeal before the U.S. Court of Appeals for the Federal Circuit from the final judgment of the U.S. District Court for the Northern District of Illinois.  Specifically, Zenith sought a reversal of the district court’s summary judgment of (1) invalidity of claim 1 of the ’301 patent and claim 1 of the ’513 patent by reason of anticipation; (2) noninfringement of the ’301 patent; and (3) noninfringement of claim 1 of the ’513 patent. Zenith Elecs. Corp. v. PDI Commc’n Sys., Inc., No. 04-C-4796,  (N.D. Ill. Mar. 21, 2007 and January 18, 2007).

On the other hand, defendant PDI cross-appealed the district court’s (1) dismissal without prejudice of its counterclaim of inequitable conduct with respect to the ’301 patent and claim 1 of the ’513 patent; (2) dismissal with prejudice of its counterclaim of inequitable conduct with respect to claims 2–8 of the ’513patent; and (3) denial of its motion for costs. Zenith Elecs. Corp. v. PDI Commc’n Sys., Inc., No. 04-C-4796 (N.D. Ill. Mar. 28, 2007).

As stated in the Federal Circuit’s opinion, wireless remote control devices were not used to control televisions in hospital rooms because of various safety and business issues. Hospital televisions were typically controlled using hardwired remote control devices placed near the patient. These devices also included internal speakers by which television audio is delivered to the patient and, thus, are interchangeably referred to as “pillow speakers.” By the late 1980s, pillow speakers were generally connected to televisions in hospital rooms via three wires.

The invention of the patents-in-suit enabled the transmission of encoded digital control signals from the pillow speaker to the television receiver over the existing three-wire interfaces installed in hospital rooms. The improved digital pillow speakers—like their analog precursors—continued to receive power from the television and did not require an internal source of power (i.e., a battery). Claim 1, which was representative of the method claims of the ’301 patent, provided a “method of operating a television receiver wired to a remote housing including a speaker and a multi function control signal encoder.” On the other hand, claim 1 of the ‘513 patent, which was representative of the method claims of that patent, provided a “method of controlling a television receiver in response to a key closure or data pulses received from a remote location over a pair of wires, the key closure having a substantially longer duration than the data pulses.”

By 1997, three companies, namely Curbell Electronics (“Curbell”), MedTek, Inc. (“MedTek”), and Crest Electronics (“Crest”), manufactured and distributed digital pillow speakers under licenses of the ’301 patent granted by Zenith. The pillow speakers were specifically designed to operate Zenith televisions using Zenith control codes. In 2003, PDI began marketing a new 20-inch LCD television (model no. “P20LCD”) for use in the healthcare industry. PDI designed the P20LCD television for compatibility with digital pillow speakers that used Zenith control code, i.e., the digital pillow speakers manufactured by Curbell, MedTek, and Crest.

On July 21, 2004, Zenith filed a complaint against PDI in the United States District Court for the Northern District of Illinois, alleging infringement of claims 1–4 of the ’301 patent1 and claims 1–8 of the ’513 patent.  In its complaint, Zenith alleged that PDI committed direct infringement by testing and operating its P20LCD televisions with pillow speakers. Further, PDI committed indirect infringement by supplying P20LCD televisions and encouraging its customers to operate the televisions using pillow speakers.

In addition to pursuing affirmative defenses, PDI counterclaimed for a declaration that the ’301 and ’513 patents are invalid due to anticipation, unenforceable because of inequitable conduct, and not infringed by the P20LCD. After termination of discovery, the parties filed their respective motions for summary judgment.  Subsequently, the district court issued the above-mentioned final judgment.

In this appeal, Zenith asserted that the district court erred in granting summary judgment that claim 1 of the ’301 patent was “invalid as anticipated by the public use of the RCA J20525 television in combination with the Curbell 205-E digital pillow speaker prior to the patent’s critical date.” Further, Zenith contended that the district court misconstrued the term “operating power.” According to Zenith, the RCA J20525 television was incapable of supplying “operating power” to the Curbell 205-E pillow speaker. It added that “the J20525 television could supply a maximum of 0.48 milliamperes (mA) of current, while the encoder chip in the 205-E pillow speaker required at least 5 mA to operate.” It claimed that “operating power” was supplied by the pillow speaker’s capacitor, which “functioned like a battery.”

The Federal Circuit however rejected such arguments.  Nothing in the patent’s claims or written description suggested a departure from the disputed term’s ordinary meaning: “an amount of power that is sufficient to enable the operation of the multi-function control signal encoder.”  Further, Zenith was unable to show anything contrary in the patent’s prosecution history.  The Federal Circuit sustained the district court’s finding that there was no requirement “that the operating power must come directly from the television or in full and continuous strength from the television.”

In so stating, the Federal Circuit affirmed the district court’s conclusion “that the J20525/205-E combination anticipated the ‘operating power’ limitation recited in claim 1 of the ’301 patent.” And there being no genuine issue of material fact with respect to whether the J20525 television and 205-E pillow speaker were publicly used together prior to the critical date of the ’301 patent., the Federal Circuit sustained the district court’s summary judgment “that claim 1 of the ’301 patent was invalid as anticipated by the public use of the J20525 television in combination with the 205-E pillow speaker prior to the critical date.”

The Federal Circuit next reviewed the district court’s grant of summary judgment that the ’301 patent is not infringed due to the existence of an implied license from the patentee. The implied license defense is typically presented “when a patentee or its licensee sells an article and the question is whether the sale carries with it a license to engage in conduct that would infringe the patent owner’s rights.” Jacobs v. Nintendo of Am., Inc., 370 F.3d 1097, 1100 (Fed. Cir.2004).

In this case, PDI bought the pillow speakers from manufacturers expressly authorized to sell products that would infringe the Zenith patent.  These express agreements granted the manufacturers a license to make and sell any pillow speaker unit the use of which would otherwise infringe the ‘301 patent.  Consequently, customers who purchased pillow speakers from Curbell, MedTek, and Crest obtained an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions.

Going over to the ‘513 patent, the Federal Circuit reviewed the district court’s grant of PDI’s cross-motion for summary judgment that claim 1 of the ’513 patent was invalid as anticipated by the public use of the J20525 television prior to the critical date. In arriving at that conclusion, the district court focused solely on whether the J20525 television satisfied the “programmed to ignore” limitation of claim 1.  However, PDI did not establish that it is entitled to judgment as a matter of law that claim 1 of the ’513 patent is invalid as anticipated by the J20525 television.

In short, the Federal Circuit found PDI’s defense of prior art insufficient. Anticipation cannot be proved by merely establishing that one “practices the prior art.”  In arriving at this ruling, the Federal Circuit cited the case of Tate Access Floors, Inc. v. Interface Architectural Resources, Inc., 279 F.3d 1357 (Fed. Cir. 2002), where it was held that the “defense of noninfringement cannot be proved by comparing an accused product to the prior art.” Anticipation requires a showing that each element if the claim at issue, properly construed, is found in a single prior art reference.

The Federal Circuit thus reversed the finding of invalidity of claim 1 of the ‘513 patent, and ordered a remand.  The district court should construe the “programmed to ignore” limitation in accordance with the principles set forth in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc). Stated otherwise, the district court in undertaking the construction should consider the patent’s claims, written description, extrinsic evidence, and prosecution history. Next, the court should consider the extent to which PDI had established that each limitation of claim 1 of the ’513 patent was anticipated by the J20525 television, “keeping in mind that PDI ultimately bears the burden of establishing invalidity by clear and convincing evidence.” Tate, 279 F.3d at 1367.

Regarding the district court’s ruling that claim 1 of the ‘513 was not infringed, the Federal Circuit found that PDI was not entitled to raise the “implied license defense.” The Federal Circuit vacated the district court’s ruling of non-infringement of claim 1 of the ‘513 patent.  In particular, it found that the agreements with the pillow speaker manufacturers merely authorized them to sell any pillow speaker unit covered by the ‘301 patent.  There was no similar grant of rights with respect to the ‘513 patent.

With respect to the district court’s dismissal of PDI’s counterclaim of inequitable conduct, the Federal Circuit disagreed with the district court’s finding. In particular, a finding of non-infringement of claim 1 of the ‘301 patent does not moot a counterclaim for inequitable conduct.  Fort James Corp. v. Solo Cup Co., 412 F.3d 1340, 1348 (Fed. Cir. 2005). Thus, the Federal Circuit reinstated PDI’s counterclaim of inequitable conduct with respect to the ‘301 patent.  Similarly, the Federal Circuit vacated the district court’s dismissal of PDI’s counterclaim of inequitable conduct with respect to claim 1 of the ‘513 patent. PDI was correct in arguing that “when inequitable conduct occurs in relation to one claim the entire patent ins unenforceable.” Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 874 (Fed. Cir. 1988).  PDI thus remained free to pursue its assertion of inequitable conduct with respect to claim 1 of the ‘513 patent, “which if established, would additionally render claims 2-8 unenforceable.”

In sum, the Federal Circuit upheld the district court’s (1) grant of summary judgment of invalidity of claim 1 of the ’301 patent; (2) grant of summary judgment of noninfringement of the ’301 patent; and (3) dismissal with prejudice of PDI’s counterclaim of inequitable conduct with respect to claims 2–8 of the ’513 patent.

The Federal Circuit however reversed the district court’s (1) grant of summary judgment of invalidity of claim 1 of the ’513 patent; (2) grant of summary judgment of noninfringement of claim 1 of the ’513 patent; (3) dismissal without prejudice of PDI’s counterclaim of inequitable conduct with respect to the ’301 patent and claim 1 of the ’513 patent; and (4) denial of PDI’s motion for costs. With respect to these matters, the Federal Circuit ordered the remand of the case to the district court for further proceedings.

Also See:

USPTO to Implement Inventor’s Oath or Declaration Provisions of the Leahy-Smith America Invents Act

U.S. Patent and Trademark Office Seeks Public Input on Proposed Fees

USPTO to Test New Post Final Rejection Option

USPTO Expands Patent Law School Clinic Certification Pilot Program

USPTO Launches Small Business Innovation Research Pilot Program